Ocean carriers have become adept at reducing capacity on an ad hoc basis when cargo volumes drop, and this operating strategy could reach a new level next month during the annual Chinese New Year celebration.
With indications that factories in Asia will begin closing in early February and remain shut for as long as three weeks, carriers are telling their customers to expect more blank sailings this year than during past Lunar New Year celebrations.
“Carriers are quicker now to reduce capacity at the margins,” said Paul Bingham, economic practice leader at Wilbur Smith Associates. “This year, it will be broader than usual,” he said.
Factories in China traditionally close for a week or two during the New Year celebrations. David Arsenault, vice president of Hyundai Merchant Marine, told the Propeller Club of Los Angeles-Long Beach on Jan. 23 that factories are announcing they will close down early or stay closed longer this year because orders from Europe are exceptionally weak.
That means some factories will shut down before the Feb. 10 celebrations begin, while others may remain closed until the end of February.
Arsenault said that with less freight to carry to the U.S. as well as to Europe, carriers will cancel more weekly sailings than they have in previous years.
It is not unusual for carriers to use slow periods as an opportunity to put vessels into dry dock for annual maintenance work. This year, with Europe in economic recession and the U.S. economy still growing at a slow pace, carriers are canceling voyages, or discontinuing vessel strings for several months, to better align capacity with demand.
Ben Hackett, who publishes the monthly Global Port Tracker with the National Retail Federation, said the capacity cuts have been especially pronounced in the Asia-Europe trade. “Some services taken out in December are still not back,” he said.
Alphaliner recently reported that carriers in the Asia-Europe trade are expected to cut 20 percent of their sailings in the week of Feb. 10 and 47 percent in the week of Feb. 17.
Canceled voyages in the trans-Pacific will not be as extensive because the U.S. trades are growing, albeit slowly, Hackett said. Any capacity that is taken out of the trans-Pacific in February should be back by mid-March, he said.
Since many carriers today operate in vessel-sharing arrangements with their competitors, an occasional canceled sailing is not necessarily disruptive. VSAs have multiple weekly sailings, so cargo interests can generally shift their freight to another service.
However, a chief concern of cargo interests, especially exporters, is that with an increasing number of cancellations comes equipment shortages and dislocations, said Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association.
Exporters rely on imported containers that are unloaded at nearby distribution hubs to generate empty containers that will carry their export commodities. Container availability can dry up quickly, especially in equipment deficit areas such as the Pacific Northwest, if there are unusually high vessel cancellations, he said.
Blank voyages represent yet one more option for carriers as they attempt to match capacity with demand in an uncertain economic environment, Bingham said. Slow-steaming of vessels, tweaking port calls in voyages to drop some or add others and canceling vessel strings during the winter months are some of the strategies carriers now use routinely to prevent severe overcapacity, he said.
Furthermore, by adding some uncertainty to the market, carriers are able to better manage shipper expectations in a year when new ship deliveries are projected to increase global capacity by almost 10 percent, Bingham said. Carriers are sending a message that even though vessel capacity is expected to be twice the growth in demand, it does not necessarily mean that freight rates are going to collapse, he said.